Choose the Right Medical Scheme

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A Medical Scheme is a serious matter

Choosing a medical scheme is one of the most vital estate and financial planning decisions you will ever have to make. The wrong decision could not only ruin you financially, it could even cost you your life. It is of the utmost importance that you approach this matter purposefully in a responsible way.

Right scheme, wrong option

Are you fed-up with your present medical scheme? Too expensive, too few benefits, too poorly a service, too Mr. This, too Mr. That? Still, be warned, do not lightly change from one scheme to another.

Consider in detail all the pros and cons of changing, especially the risks involved, e.g. possible waiting periods and the full consequences thereof. Often you are on the right scheme, but on the wrong option. You then only need to change options, not schemes.

Do not put the cart before the horse

Determine your health care needs before joining a particular scheme. Completing my Needs Analysis Questionnaire is an important first step in choosing the right medical scheme. The one that is right for you.

First the examination, then the diagnosis and only then the prescription. Prescription before diagnosis is immoral, to say the least. What would you think of a optometrist that first prescribes expensive lenses for your new glasses and only then wants to test your eyes?

How much is your life, or that of a loved one, worth to you?

The right medical scheme is firstly the one that you can afford. The most comprehensive medical scheme in the world is absolutely worthless if you are unable to keep up with the monthly contributions. On the other hand, do not skimp on your own or a loved one’s life.

Remember, a medical scheme is a necessity, not a luxury.

Gravity (seriousness) and Frequency

Chances are very high that you will fall sick with a cold this coming year. Although you might feel as if you were run over by a train, don’t worry, it is not serious. You will get well soon enough.

On the other hand, it is highly unlikely that you will ever literally be run over by a train. The chances for this to happen are very low. Should it perhaps happen though, the dire consequences will of course be of a very grave nature indeed.

Keep this connection between the gravity of a medical situation and the frequency of such a situation possibly occurring, in mind when choosing a medical aid:

Grafiek Engels

X  High Frequency – Low Gravity

Such as the flu, broken arm, spectacles, tooth ache, diarrhoea, physio, anxiety, complication-free pregnancy… The occurring frequency hereof is very high, but is relatively speaking not serious.

Y  High Gravity – Low Frequency

Such as cancer, heart bypass, stroke, kidney failure, head-on collision, gunshot wound, premature baby… The gravity hereof is very high, but the occurring frequency thereof is relatively speaking low.

Characteristics: High Frequency – Low Gravity Conditions

01   It is to a great extent possible to doctor yourself.
02   You can do a lot yourself to manage the treatment of the condition.
03   Expert help is more readily available countrywide.
04   The dentist, doctor, pharmacy, optometrist, day clinic… will  suffice.
05   Medical cost are relatively speaking inexpensive.
06   It is possible to save for expected smaller medical expenses.
07   Your life is not at stake.

Characteristics: High Gravity – Low Frequency conditions

01   There is absolutely no way that you can doctor yourself.
02   You cannot manage the condition without expert assistance.
03   Highly trained specialists needed to treat you are relatively scarce.
04   You need expensive treatment in high cost facilities.
05   Medical costs are mostly unaffordable.
06   It is impossible (or uneconomical) to try to save for these costs.
07   Your life, or a loved one’s life, is often literally at stake.

Life is literally at stake

This characteristic emphasises what you must do as a starting point: choose an option with comprehensive cover for the High Gravity – Low Frequency conditions and then only, if you still have money to spare, provide for the High Frequency – Low Gravity conditions. Not the other way round! No matter how frequent and costly the pharmacist, dentist, optometrist or other out-of-hospital-costs might be…

In-Hospital costs / Major Medical Expenses

Therefore, first obtain the best possible cover for in-hospital costs and other major medical expenses.

The ideal is:
01   No general overall annual limit.
02   Free choice of hospitals.
03   Gap Cover.
04   No deductibles, co-payments or pre-admission levies necessary.

No general Overall Annual Limit

A general overall annual limit is the maximum amount a scheme will pay for accumulated claims in a claim year. If it is R800 000 for example, it means that the scheme will stop paying at R800 000 even if your are still in hospital and all the accounts add up to close to R1 million in the end. Schemes impose such limits in an effort to restrict their risks.

R800 000 for example sounds like a lot of money. It is too and you will get far with it. However, fact is one could end up in circumstances where it won’t  be nearly enough. What then?

Four examples, occurring during the same year at the same scheme:
01   R3 348 703,58 — Pancreatitis. Multiple complications.
02   R2 596 806,73 — Leukaemia. Bone marrow transplant.
03   R2 101 944,44 — Type I-Diabetes. Kidney failure. Leg-amputation.
04   R1 938 424,85 — Endocarditis. Cancer of the lymph-nodes. Chemo.

Luckily, the patients involved had excellent cover and all claims were paid in full. A good example of High Gravity – Low Frequency situations.

I therefore don’t recommend options with overall annual limits, at all. The risk is simply too great to be without unlimited cover. Moreover, there are options available (even among the less expensive ones) with comparable contributions which have unlimited cover.

It is possible to increase an overall annual limit with supplementary cover. Do this, if you are on an option with a limited overall annual limit.

Sub-limits

Even if a particular option has no general overall annual limit, it may still place limits on certain procedures, e.g. internal prostheses. Take note of this when comparing different options with each other.

To be admitted to any hospital of your own free choice

It is not really a case of wanting to be admitted to a certain hospital, but rather a case of wanting to be able to make use of a certain specialist. The problem is that a specialist seldom works at more than one hospital.

If the specialist whose services you wish to retain works at hospital X and your scheme will only pay for services rendered at hospital Z, you will have a major problem at hand: either you will have to foot the bill yourself at hospital X, or you will have to go to hospital Z and make do with second best, even if this is only according to your own perception.

Your circumstances may be of such a nature that choosing an option which requires you to make use of a certain hospital network will be your best choice in the situation, but generally it is definitely inadvisable to join an option which dictates the use of certain hospitals and curtails your freedom of choice.

Gap cover

Should a specialist, doctor or anaesthetist charges more (sometimes much more!) than what your scheme is prepared to pay for his or her services rendered during hospitalisation, the ensuing difference, the GAP, will have to come out of your own pocket, unless you have cover for this.

The gap can be of enormous extent. I know of amounts of up to R60 000, after prolonged hospitalisation. It usually becomes an issue if you are hard up for the services of a specific specialist who charges more than what your scheme is willing to pay.

Take out adequate gap cover. One can hardly afford not to afford it.

Deductibles, co-payments and/or pre-admission payments

Most options these days require deductibles, co-payments or levies to be paid in respect of certain procedures, e.g. spinal fusion R5 000, wisdom teeth R2 650, hysterectomy R1 000… Make sure what these might be, before joining a particular option.

You can take out extra insurance to cover these shortfalls.

Exclusions and limitations

All options have certain exclusions and/or limitations. Make sure what these are before joining a scheme. For information, don’t just rely on the scheme’s expensive marketing brochures with pictures of pale looking people jumping for joy higher than any highly trained Olympic athlete could ever wish to jump.

Rather read the scheme’s registered rules to get the correct information.

Chronic conditions

It is important in choosing an option to ensure that not only will it cover your chronic conditions, but also the prescribed medication for those conditions. Does the option only pay for generic equivalents in terms of a restrictive formulary? Will those medications agree with you? First consult with your doctor before making a final decision.

Weigh up the cost of your chronic medication against the contribution of the option. Sometimes it is not a bad idea to go for a lower priced option, pay for your own medications and still have money left to spare.

Also, if your conditions are PMB’s (prescribed minimum benefits) you don’t have to take out an expensive option just to have your conditions covered, because even the most lowly priced option must cover PMB’s in full. Again we need to make sure that the medication the scheme will pay for, is either the medication already prescribed, or that the equivalent will be endorsed by your doctor.

Prescribed Minimum Benefits (PMB’s)

Prescribed Minimum Benefits (PMB’s) is a set of defined benefits, to ensure that all medical scheme members have access to certain minimum health services, regardless of the benefit option they have selected. The aim is to provide people with continuous care to improve their health and well-being and to make health care more affordable.

Every option must pay for the diagnosis, treatment and care of:
01   any emergency medical condition;
02   a limited set of 270 medical conditions;
03   28 chronic conditions defined in the chronic Disease List (CDL)

The scheme must pay in full for these without co-payments/deductibles and may also not utilise your savings or day-to-day benefits to pay for PMB’s. Now even a hospital option therefore, has more cover for certain day-to-day expenses than you might realize at first glance.

Out-of-Hospital Expenses / Day-to-Day Benefits

Colds, flu, diarrhoea, nausea, pains, strains, tooth ache, arms too short for reading, anxiousness…  Examples of High Frequency – Low Gravity conditions. Relatively inexpensive and not life threatening per se.

But, it may deteriorate into High Gravity – Low Frequency conditions. Sniff-sniff. Cold. Flu. Bronchitis. Pneumonia. Hospitalisation. Yes, in the end maybe even death. This happens when you, because of a lack of money, neglect to seek medical help to nip the illness in the bud right at the onset stage.

When you go from doctor to specialists to more specialists, having lots of blood tests done, swallowing bags full of medications, you may soon be choking on massive medical bills without ever seeing the inside of a hospital. It is therefore imperative, if at all possible, to also provide for High Frequency – Low Gravity conditions.

How? This will depend on the kind of option you choose.

The right option

The way an option provides for day-to-day expenses is a useful way to categorize options into five kinds, which makes it easier for you to choose the scheme option best for you.

I divide options into five types:
01   Network
02   Hospital
03   Hospi-saver
04   Threshold
05   Traditional

Network

Reasonable to comprehensive cover for hospitalisation. Extensive cover for most day-to-day expenses, but limited cover for certain services, e.g. specialists outside of hospital.  Must make use of prescribed networks. Excellent entry level option for young people starting to work and who are still relatively low income earners.

Network options of different schemes differ greatly and it is important to compare them properly.

Hospital

High Gravity – Low Frequency expenses covered fairly well. No day-to-day cover, except for PMB’s. Most are not too badly priced, but the least expensive one is not necessarily the best one. Do your homework!

You must still provide for day-to-day expenses by e.g. opening a savings account for this purpose.

Hospi-saver

High Gravity – Low Frequency expenses covered well. Covers day-to-day expenses from a savings component that by law cannot be more than 25% of your total contribution.

Normally you could do better by taking out a hospital plan and put your savings away yourself. If your contributions are subsidised by an employer though, it makes sense to, in effect, let the employer pay for the savings by taking out a hospi-saver.

A hospi-saver has limitations. People get fed-up with this kind of option when they run out of savings soon after the claim year has started. The unutilised savings, on the other hand, will at the end of the year be carried over to the next claim year for your benefit.

Threshold

There are variations, but this option usually works on the basis that your day-to-day expenses are first paid from your savings, thereafter from benefits provided by the scheme and when all these are exhausted, there is a self-payment gap during which you must pay, up to a threshold.

Once all your accumulated day-to-day expenses reach the threshold amount, the scheme catches you in a so-called safety net, after which the scheme now continues to pay, with their money, for your expenses above the threshold up to certain pre-determined limits.

Excellent cover for most High Gravity – Low Frequency situations, although thresholds are sometimes so high that it almost amounts to a non-benefit.
Traditional

Schemes from the “good old days”. Separate yearly limits for doctors, specialists, dentists, medication, physiotherapy, psychology, optometry, etc. Comprehensive cover, but expensive. Some hybrid schemes, part traditional, part new generation, do offer good value for money.

Changing of Options during the Claim Year

All schemes must allow you to change options at the start of the new claim year i.e. 1 January. As a general rule you must inform the scheme of your intention to change options before 30 November.

Some schemes will allow you to downgrade during the claim year. Some will even allow you to upgrade. Most schemes though, do not allow any option changes during the claim year at all.

If possible, choose one that will allow you to upgrade during the claim year. This could be extremely advantageous if your health changes unexpectedly for the worse and you need more benefits than what your present option offers. No one can predict the future, so it gives you peace of mind to know that your scheme will consider allowing you to change to a higher, more suitable albeit more expensive option, if needs be.

Emergency fund for medical expenses

You should build up an emergency fund amounting to anything from 3 to 6 months of your gross income. Very handy should you e.g. be made redundant at work. This is what good estate planning dictates.

For the same reason, you should build up an emergency fund for unexpected medical expenses. For those day-to-day expenses or deductibles which your scheme won’t pay.

Emergency Transport and Assistance

During May of 1998 a seriously ill baby of a client of mine had to be flown from Cape Town to Pretoria and back, for uniquely specialized treatment. Even then, the cost for this round trip was just over R60 000. Three years ago the cost for a flying ambulance from Bloemfontein to Cape Town, also for a baby, was R93 000.

Make certain your scheme’s benefit in this regard is adequate. It might be necessary to take out supplementary cover.

International Medical Travel Insurance

If you travel regularly overseas or outside our borders you may want to consider a scheme with built in international medical travel insurance. It could really be worth your while.

Other additional benefits

Make certain other benefits a scheme might offer are relevant and not just dazzling nice-to-haves to try and make the scheme look better.

Preventative care, conservative dentistry, the Pill, treatment at a causality ward, specialized radiology, all paid from your in-hospital benefits are examples of excellent additional benefits.

Late joiner penalty

If you are older than 35 years of age and more than 3 months have lapsed since you have last been a member of a medical scheme, then there is a good chance that the new scheme might impose a late joiner penalty on you.

This is payable each month for as long as you are a member of a medical scheme and depending on the facts, the penalty may be as much as 75% of your normal contribution.

It is therefore very important that you furnish acceptable proof of your previous years of membership of other schemes (your so-called credible coverage) to the new scheme, to either avoid a penalty or to make certain that the penalty is as low as possible. This is where I can be of real help to you.

Waiting periods

A scheme may, depending on the facts, impose certain waiting periods:
01   A general waiting period of 3 months, without any cover at all; or
02   A general waiting period of 3 months, with cover for PMB’s only; and
03   A 12 month waiting period, in respect of pre-existing conditions.

Again, this is an area where I can be of great assistance to you.

Pro rated benefits

A scheme’s claim year runs from 1 January to 31 December. Should you join a scheme during a claim year, your benefits will most definitely be pro rated. Always keep this in mind.

Say a scheme provides R3 000 for acute medication for a full claim year. You join the scheme from 1 July. From this date till the end of the year, you will only have R1 500 for acute medication.

Must not only look good on paper

A scheme might have excellent benefits. The monthly contribution might be very reasonable. But the last thing that you would like to read about in the paper four days after your heart bypass, is that your brilliant scheme has been liquidated.

The right medical scheme must not only look good on paper. It must also be safe and solvent, pay claims well in time and render a good service.

Reserves

How much does your scheme have in the bank? An important aspect that you must take note of to determine a scheme’s financial stability.
Solvency

The solvency margin of 25% prescribed in terms of regulation 29 of the Medical Schemes Act 131 of 1998 is not the only indicator of a scheme’s ability to pay its claims. It is one amongst others and it must be weighed up in context with the others to decide if a scheme is safe or not.

Contributions received : Gross claims paid per beneficiary

The contributions / claims ratio is an important indicator of a scheme’s own health. Be wary the closer it gets to 100%, because it indicates that the scheme is paying out in claims what it is earning in contributions, with nothing left for non-healthcare expenses and reserve building. A very handy tool when comparing schemes.

Global Credit Ratings

Global Credit Ratings, an international grading company, measures participating schemes’ ability to pay their claims. An A and above is good. A scheme with a BBB grading is reaching danger levels.

Unfortunately not all schemes partake in this grading exercise. It is not obligatory and some schemes feel it is too costly and a waste of members’ money. Don’t necessarily see anything negative in a scheme that does not partake.

Always remember to keep the whole picture in mind. Even a scheme with a good Global Credit Rating might be risky to join. In the 1990’s a scheme with an excellent AA+ rating was almost wiped out because of a computer problem, excellent grading and all.

Age profile

Watch out for a scheme with an average age profile which is getting older each year. This means the scheme is not attracting enough young healthy members (low claimers) in comparison with older people who are, as a matter of fact, normally more sickly and therefore higher claimers.

Contribution increases

Take it for granted that your monthly contribution will be increased each year at the beginning of January. This is because of many reasons inter alia medical inflation which stays constantly higher than ordinary inflation and also the ratio between the Rand and other monetary units.

Choose a scheme with reasonable increases in the past, which were more or less in line with the industry average. Be careful if was much lower or much higher.

Management

Who manages your scheme? Who are the trustees? Principal officer? Track record? Are they doing a good job? In the end it is mainly management who makes or breaks a scheme.

Service Excellence

There is no such thing as a perfect medical scheme which renders a faultless service. After all, the people working at the scheme are only people like you and me: mere human beings who do make mistakes.

Should something go wrong, like a claim not being paid, it is easy to blame the scheme, but it is not always the scheme/administrator that is at fault: it could also be the member, the broker or the service provider who is the guilty party.

Everybody involved must do his/her part to ensure service excellence.

Administrator

Firstly, the administrator (in-house or outsourced) is the face of the scheme, the people doing the work such as paying claims, underwriting new members, registering new dependents, collecting contributions and rendering other important services. The administrator is mainly responsible for service levels, either good or bad. Deciding on the best scheme, you must also take a hard look at the record of the scheme’s administrator. There are few things as bad as bad service, especially since you are often stuck with a scheme as it is not always easy or advisable to change schemes in certain circumstances.

Secondly, what is also of prime importance, is a scheme’s total administration cost as a percentage of Gross Contribution Income. If it is more than 10% it could be indicative of some negative factors that one should take note of. A usable yard stick to compare schemes with each other.

Forthcoming attractions

Going to the movies a decade or four ago, the forthcoming attractions were as enjoyable and important as the main feature, the movie, you were about to watch. I doubt if anticipated future developments regarding health care in South Africa will be entertaining and enjoyable, but I do know that is important to be aware of what will be coming your way sooner or later. For example the proposed National Health Insurance or Low-Cost Medical Schemes, changes to Prescribed Minimum Bernefits.

It is one thing to choose the right medical scheme, the one that is right for you. It is a totally different thing though to stay on the right medical scheme in a volatile health care environment. It is imperative to continually stay informed of pending changes that might affect you and your scheme detrimentally. Your right scheme of today might just not be able to cope with future developments and it is always better to jump ship rather too early than too late. This is one reason why you need a broker — to be your lookout.

The Broker

Naturally, I would love to blow my own horn…  But, perhaps only this: use your head, use a specialist.

Contact me

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